If you want to start saving money, you have to know the importance of saving money. If people do not understand it, most probably they are never going to make much saving. Let's break it down to a few points here.
The importance of money saving
Emergency Funds should top the list. People tend to be very optimistic when it comes to their job. Not many people actually prepare a fund to be spent in case of losing their jobs. Despite the optimism, it is quite a fact that economic pressure is real and most of the time, cruel. When you need to leave your job, you will have to. If you have a fund which you prepared for this unfortunate disaster, you are going to survive and able to rebuild your career.
So, what is the amount of money that you should save for this case? I am not going to give you a figure. But you will need to know your monthly expenses. Your saving should at least last for six months covering all the monthly expenses. One drawback of this emergency fund is people tend to use the money for the inappropriate emergency such as car modding, personal hobbies, renovation, wedding ceremony and so on. You have to make it clear to yourself that emergency fund are the money that can be used when you lost your source of income. Apart from this, car maintenance, home improvement or any other thing will be using your other portion of savings. You can name it saving A or saving B, Emergency Fund and Improvement Fund or any other names as long as you make it obvious to yourselves that they are different.
Other than this, topping the list is your retirement plan. Start saving for retirement! When? Now! People always dream of retiring at young age, but they are spending like a king. Believe me, if you are able to make loads of money and you don't have the techniques to save your money, then you will not be able to retire anytime soon.
Money saving is life saving. Maybe it is a bit too much to compare it this way. Despite the much self control that people have, sometime it is so irresistible to purchase something to make it worse, you can't actually afford it. When this happen, people often turn to credit cards which causes debt. It is common that people find it hard to pay off credit card debt due to the high interest rates. If you have a well maintained savings, then you can actually avoid using credit cards to pay for the things you can't afford.
If you have children, you may want to save for their future education.
I can go on and on about how importance of saving money but I will not do that. I believe it is enough with two paragraphs about this. If you really need more, let me make it easier for you. IT IS FREAKING IMPORTANT TO SAVE MONEY! IT WILL SAVE YOU FROM HELL! Now, just put that in your mind and ask no more. It will do no harm.
Let us get to work now.
Step 1: How to start saving money?
If you want saving money to work, you will need to know where your money comes from. It can be your monthly salary, rental collections, divident, interest, gift and so on.
Next, it will be your expenses. Calculating your monthly expenses may sounds easy but it is often easier said then done. Most people will not have the determination or patience to keep track of their expenses which make it hard to save money. Make it a habit and you will find it easy later. If it is too hard for you to continuously keeping track of your expenses, at least try to do it for just three months. Make sure you keep track of your daily expenses such as food, gas, entertainment and utility. If you do it for at least three months, you should be able to get quite accurate average expenses.
In order to make things even easier create a new excel spreadsheet and start inputing your daily income or monthly cashflow together with all your expenses. For this, you might want to get some help from monthly budget spreadsheet which you can get online.
If you have done all these, then you can now calculate the surplus of your money. With this information you will get the estimatated amount of money you can afford to save. If you have surplus, then it is good for you, continue reading and discover the tips on how to save your money. Else, if you have negative surplus, don't worry, the next post will be spcifically made to suit your need. Alright, if you have done all these, you should have an amount which can be spent on things you like! This is very likely to happen and it is one of the reason why people can't save money despite making a lot of money. So, you will have to control yourself from spending the surplus of money that you have. Put it in anywhere where you can't touch it.
Step 2: No More Debts
I am not talking about the loan or installment you need to pay every month. Most of the time, it is the credit card debt. Yes, credit card actually provides easy payment and convenience but it also cause huge debt to a lot of people. Most people don't pay full amount of what they owe the bank. If you are dooing this, you should start to calculate how much interest you are actually contributing to the banks when you can actually save it for your own usage. If you have been paying the interest for one whole year, imagine how much you could have saved? Having said so, it is actually another problem if you are struggling with this. If you do, read on. If you don't, please skip to the next step.
If you are always in debt with credit card and the balance seems to maintain and never drop but only increase, then you will have to stop spending that much. Otherwise, saving money is going to be harder than it already is. You will probaly hate this when I say the only way to actually clear of all the debts is not easy. You will need to pay them all back. You might get to know a lot of zero percent balance transfer and other offers which seem to be very reasonable deal to clear you debt but the fact is you still owe them that much of money if it does not increase until you pay them back everything. If you want to go on with the first step to saving money, then by all mean clear off the debts.
You can reduce the balance by spending lesser and lesser every month. The best way is to leave your cards at home. If you have a number of cards, cut off most of them and keep only one or two for emergency purpose. Reducing the balance of your debts is a good step to start your money saving plan. If your debts is too huge, then at least pay more than the minimum payment required every month. When you are doing this, make sure you are not using the cards anymore.
When the burden is too heavy and you are really in deep shit, do call up the credit card company and inform them about your current situation. This industry is so insanely competitive and thanks to it, they will make things slightly easier for you. But no doubt, you still have to pay them the money. At least they could help you a little in certain ways.
Let us now go to the next step. I have been talking about how you should reduce the balance of your debt. It is easier said than done. Still it is not impossible for anybody to achieve it. Lets see how can you spend lesser and save more money.
Step 3: Cut monthly spending
You have to spend less than you earn. It sounds so easy yet so difficult. There are a lot of possible reasons to this which I am going to talk about it further in next post. For now, let us focus on cutting monthly spending.
Before you can start to spend less, perhaps you can spend some time to list down the possible items where you can reduce your spending. Check the list below.
- Coffee/Latte/Starbucks/Coffee Beans
- Branded Clothing
- Gadgets - You can always op for used products and seriously they offer the same features but much more cheaper just because it is used. It can save you a lot of money and that is the most important.
- Food expenses - Perhaps it is time for you to eat out lesser and be amazed with the amount of money you can save. You can start to take up new hobby, cooking and discover the fun of it while you save money.
- Beauty products - Well, as it may seem to be impossible to reduce the money spent on these products, I still would like to highlight this. Why? Just look at how much money you spent on it every month and imagine if you can find ways to actually reduce that amount of money, you will have a bigger note in your monthly saving account.
- Rental - You will have to see how you can save your money in rental. Are you staying alone in a house with three rooms? Why not share rent out the other rooms?
- Gym membership - If you seldom use the facility, consider closing it. It won't do much if you don't use it frequently, but if you cancel it, you will save some money.
- Entertainment - How much do you spend for entertainment? Get the calculation done and start reducing it. Movies, fine dining and so on.
- Subscription - If you are subscribing to to any cable or satellite tv, you might want to cancel off some channel which you do not watch. Or totally cancel everything off if you have it just for the sake of having it, like me.
- Avoiding interest - Pay your bills before it is due to avoid any interest charges.
- Quit smoking - Saving money while you stop playing with smoke that will someday destroy your lungs. Of all the ways to save money this is one of the best.
If you start to cut your expenses, then start a new saving account to keep all the money you have just saved through the reduced monthly expenses. Get an account without ATM card or cheque book. This will make it harder for you to withdraw the money that you have saved with much effort. Remember, you do not what to cut your expenses just to get more expenses. If you are looking for saving account with higher interest, you can try to save money online. Nowadays, financial institutions are starting to provide online saving account feature to their clients. When every savings and transactions are done online, a lot of cost especially on manpower are reduced greatly. In return, the cost that is saved will be given to clients as a part of interest. That will actually give clients a higher interest rates in their saving account.
Step 5: Review your money saving plan | Goal Setting
You should use one whole month to complete the first few steps above. Now, if you have done that, it is time to review your saving plan and result. You should have your expenses list and also how much is the surplus and what is the amount you have saved in your newly opened saving account. Look at the figure and do some analysis. Ask yourself, can you do better next month? How and where else can you cut the expenses? Now that you have the data on hand, things will be much clearer. What you had done for the first month can be a rough guideline to set a goal for your money saving project. Your goal can be in terms of total amount of money or maybe a new car, home or anything else. If you have a bigger goal, you will have to save more money and frequently. It is just that simple. With a clear direction, you will gain more determination and saving money is definitely going to happen.
Steps 6: Making save money easy - Automate it!
The reason why we review our first month data and result is to set an amount to be saved automatically each time a paycheck comes in. With the online and many other features, this can be done easily. Most of the time people fail to save any money because they don't see any surplus at the end of the day. By making automatic reduction to your paycheck, you will only see the money that is left for you to spend. You don't spend what you don't see. With the help of the budget sheet you made, you will have a reasonable amount of money to be deducted for the purpose of saving without affecting your daily life. Of course when you do earn more, you will just need to manually transfer more to your saving accounts.
It does not matter how much you really save as long as you do start to save. Even if you save $20 per week, you will have an extra of $1040 a year later. Isn't that useful for throwing a party or buying yourself a gadget that you want? Better still, you do not have to worry about paying back the money because it is yours.
The most important is you start to take action. So, why wait? Start now! Alright, this is a bit too long. I will proceed to next post on more money saving ideas.